- Coastal Manufacturing's production manager collected the following utility cost data over five months: Month 1 (1,200 machine hours, $3,600), Month 2 (1,600 machine hours, $4,400), Month 3 (1,000 machine hours, $3,200), Month 4 (1,800 machine hours, $4,800), Month 5 (1,400 machine hours, $4,000). After applying the high-low method, management realizes they need to estimate costs for multiple scenarios. What would be the difference in estimated total costs between operating at 2,000 machine hours versus 1,100 machine hours?
Answer: $1,800
High-low method: High point is Month 4 (1,800 hours, $4,800), Low point is Month 3 (1,000 hours, $3,200). Variable cost per hour = ($4,800 - $3,200) ÷ (1,800 - 1,000) = $1,600 ÷ 800 = $2.00 per hour. Fixed cost = $4,800 - (1,800 × $2.00) = $1,200. At 2,000 hours: $1,200 + (2,000 × $2.00) = $5,200. At 1,100 hours: $1,200 + (1,100 × $2.00) = $3,400. Difference = $5,200 - $3,400 = $1,800. Choice B incorrectly calculates variable cost as $2.50. Choice C uses average method. Choice D makes computational error in fixed cost calculation.
- Metro Hospital's laboratory analyzed its testing costs over eight months using the high-low method. The analysis revealed a variable cost of $12 per test and total fixed costs of $8,000 per month. If the high point in the data was 1,500 tests costing $26,000 total, and management needs to verify the calculation, what should the total cost have been at the low point if it involved 800 tests?
Answer: $17,600
Given: Variable cost = $12 per test, Fixed cost = $8,000, High point = 1,500 tests at $26,000. Verification: $8,000 + (1,500 × $12) = $8,000 + $18,000 = $26,000 ✓. At low point with 800 tests: $8,000 + (800 × $12) = $8,000 + $9,600 = $17,600. Choice B adds incorrect variable cost calculation. Choice C omits portion of fixed costs. Choice D uses wrong variable cost rate.
- Westfield Manufacturing collected the following data over six months: January (2,100 units, $28,500 total cost), February (1,800 units, $26,100 total cost), March (2,400 units, $30,600 total cost), April (2,200 units, $29,100 total cost), May (1,600 units, $25,200 total cost), and June (2,000 units, $27,900 total cost). Using the high-low method, if the company produces 2,300 units next month, what is the estimated total cost?
Answer: $30,150
Using high-low method: High point is March (2,400 units, $30,600), Low point is May (1,600 units, $25,200). Variable cost per unit = ($30,600 - $25,200) ÷ (2,400 - 1,600) = $5,400 ÷ 800 = $6.75. Fixed cost = $30,600 - (2,400 × $6.75) = $14,400. For 2,300 units: $14,400 + (2,300 × $6.75) = $30,150. Choice B uses incorrect variable cost calculation. Choice C incorrectly uses average costs. Choice D uses wrong high/low points.
